Cathay Pacific profits soar but competition hurts yields

HONG KONG--Cathay Pacific said Wednesday its first-half net profit soared to HK$347 million (US$44.77 million) on higher passenger demand, but the Hong Kong flag carrier warned of a “challenging” outlook as surging competition held down fares.

The figure for the six months ending June 30 compared with a net profit of HK$24 million in the same period last year. Its first half revenue rose 4.6 percent to HK$50.84 billion.

But despite its upbeat performance, the blue-chip airline faces several challenges including persistently high jet fuel prices.

“The operating environment for the Cathay Pacific Group — and the aviation industry as a whole — remains challenging,” group chairman John Slosar said in a filing to the Hong Kong stock exchange.

“On the plus side, we continue to strengthen our passenger network and the connections available through Hong Kong,” he said.

Aviation analyst Daniel Tsang told AFP the huge increase in net profits was on account of the airline's improving passenger operations, which contributed to a sharp jump in revenues.

The airline's passenger revenue in the reported period was up 4.4 percent to HK$36.52 billion compared to the previous year, helped by the introduction of new long-haul routes to destinations such as Doha and Newark.

Falling Passenger Yields

However, Tsang said the airline will need to improve its passenger yields, a key measure of airlines' profitability, to maintain this earnings trend.

Passenger yield, the measure of the average fare paid by a passenger per mile, fell 3.5 percent to HK66.6 cents, reflecting weaker ticket prices in the face of surging competition.

“For this upward trend to be sustained, arresting this yield decline is paramount and a prerequisite,” he said.

Revenue for its air cargo business, which took a toll for more than two years due to the weak economy and demand for shipments, rose 3.4 percent compared to the first half of last year, at HK$11.66 billion.

But over-capacity in the air cargo market created downward pressure on rates, with the airline seeing cargo yield falling by 6.9 percent.

“We expect our cargo business to be better in the second half of 2014 than it was in the first half. We are well placed to take advantage of any increase in demand,” the airline said.

Cathay also indicated that high fuel prices were partly mitigated by operating more fuel-efficient aircraft.

Five new aircraft, including two Boeing 777-300ERs, were delivered to Cathay during the reported period, as it retired two Boeing 747-400 passenger aircraft.

Eleven new aircraft will be delivered in the second half of 2014, as it continues to modernize its fleet.

“Cathay is pretty aggressive in renewing its fleet. By end of 2014, it will only have seven gas-guzzling 747-400s,” analyst Tsang said.

The International Air Transport Association in June said airline profits are improving and that it expects airline companies to record combined net profits of US$18 billion for 2014, down from its earlier forecast of US$18.7 billion made in March.